Young v. C.I.R., 091588 FEDTAX, 15257-82

Docket Nº:: 15257-82, 1077-83, 9423-83, 21344-83, 35765-83, 10117-84, 24241-84, 31239-84, 31748-84, 35720-84, 39325-84, 431-85, 3139-85, 5422-85, 8309-85, 8355-85, 8693-85, 15867-85, 19726-85, 20272-85, 26324-85, 28022-85, 33572-85, 34422-85, 38121-85, 39675-85, 40466-85, 42407-85, 42539-85, 42540-85, 2869-86, 8120-86.
Opinion Judge:SCOTT, JUDGE:
Party Name:ROBERT S. YOUNG AND KIMBERLY C. YOUNG, ET AL., [1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Robert H. Infeld, for the petitioners in docket No. 31748-84. Allan F. Meyer, for the petitioners in docket No. 8309-85. Richard Baron, for the petitioners in docket No. 26324-85. Richard Baron, for the petitioners in docket No. 26324-85. Gary Walker and Kirk Chaberski, for the respondent.
Case Date:September 15, 1988
Court:United States Tax Court
 
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56 T.C.M. (CCH) 174

ROBERT S. YOUNG AND KIMBERLY C. YOUNG, ET AL., [1] Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos.: 15257-82, 1077-83, 9423-83, 21344-83, 35765-83, 10117-84, 24241-84, 31239-84, 31748-84, 35720-84, 39325-84, 431-85, 3139-85, 5422-85, 8309-85, 8355-85, 8693-85, 15867-85, 19726-85, 20272-85, 26324-85, 28022-85, 33572-85, 34422-85, 38121-85, 39675-85, 40466-85, 42407-85, 42539-85, 42540-85, 2869-86, 8120-86.

United States Tax Court

September 15, 1988

Robert S. Lamont and Jan S. Neiman, for the petitioners in all docket Nos.

Robert H. Infeld, for the petitioners in docket No. 31748-84.

Allan F. Meyer, for the petitioners in docket No. 8309-85.

Richard Baron, for the petitioners in docket No. 26324-85.

Richard Baron, for the petitioners in docket No. 26324-85.

Gary Walker and Kirk Chaberski, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

SCOTT, JUDGE:

Respondent determined deficiencies in petitioners' Federal income taxes and additions to tax for the years and in the amounts for the various petitioners as follows:

Additions to tax, sections
Petitioner Year Deficiency 6651(a), 6653(a), 6653(b)(1), 6659, 6661.
Robert S. Kimberly C. Young 1978 $ 5,955.90
1979 73,977.00
1980 49,569.00
1981 13,911.00
1982 8,099.00
Frank N. & Barbara C. Fleischer 1977 6,988.00 $ 407.00 $1,338.00
Osvaldo & Zoraida Diaz 1974 11,371.00
1975 7,381.00
1977 104,698.00 $52,349.00
1978 8,005.00 41,503.00
1979 137,488.00 68,744.00
1980 41,072.02
1981 35,099.00
1982 50,250.00
Estate of Arthur J. Habersin,
Deceased, Richard C. Carter,
Personal Representative & Joan
Habersin 1980 18,270.00 914.00
1981 23,264.00 1,163.00
Jorge Egurrola 1978 17,919.00 2,031.00
1979 32,298.00 8,075.00
1980 16,962.55 4,241.39
1981 9,296.00 2,324.00
Additions to tax, sections
Petitioner Year Deficiency 6651(a), 6653(a), 6653(b)(1), 6659, 6661.
Ann Wilson 1979 $ 14,394.00
1980 18,726.00
1981 19,733.00
1982 12,904.00 $1,108.70
Thomas O. & Betty F. Gentsch 1978 73,883.00
1979 111,489.56 $6,475.28 $7,475.28
1980 81,172.57 4,058.63
1981 185,465.06 9,273.25 $16,606.66
Joel & Ellen S. Benson 1981 24,397.00 876.00
1982 37,634.00 3,439.00
John L. Wilson 1979 8,506.00
1982 22,851.00 1,480.75
Charles A. Lipman 1979 20,927.00
1980 36,064.00
Joe J. & Elaine P. Miles 1977 20,949.00
1978 139,724.00
1979 123,931.21
1980 126,977.60
1981 100,455.25
Marvin & Harriet Ribotsky 1980 20,243.00
1981 33,580.10
1982 16,027.51
Edward & Katherine Rosengarten 1981 $ 24,888.40
1982 43,963.54 $4,396.35
Edward Rosengarten 1983 28,014.00 $8,338.20
Osvaldo Diaz, M.D., P.A. FY 10/31/76 1,926.00
FY 10/31/77 19,065.00
FY 10/31/78 44,864.00 $11,216.00
FY 10/31/79 5,054.00 3,772.00
FY 10/31/80 7,343.00 1,836.00
FY 10/31/81 16,999.00 1,081.00
Chang You Wu & Elizabeth Wu 1977 17,754.00
1978 22,318.00
Larry & Bonnie Shore 1978 22,412.03 $ 1,120.60
1979 62,752.81 3,137.64
1980 103,268.66 5,163.43
1981 86,144.98 4,307.25
1982 77,407.00 3,870.35
Steven Gold 1981 11,968.00
1982 8,977.00 894.20
Paul T. & Elaine Richman 1980 10,566.00
1981 15,642.00
Harold & Helen Gold 1980 27,463.42
1981 57,229.62
1982 30,260.50 3,026.05
Merle W. & Jean C. Merchant 1981 $ 56,633.01
1982 75,695.00 $7,569.50
Filco, Ltd. FY 2/28/81 77,263.00
FY 2/28/82 117,165.00
FY 2/28/83 82,734.00
Liveco, Inc. FY 2/28/82 50,778.00
Sikeston Motel Corporation FY 9/30/81 97,457.00
FY 9/30/82 114,707.00
FY 9/30/83 49,135.00
David C. Miligrom 1980 517.00
1981 8,053.00 $2,416.00
1982 13,545.00 4,064.00
1983 2,163.00 649.00
By Amended Answer respondent claimed an addition to tax under section 6621(c) [2] for each of the petitioners. Some of the issues raised by the pleadings in each case have been disposed of by agreement of the parties leaving for our decision the following: (1) Whether petitioners are entitled to any deductions for claimed losses in connection with a sale/leaseback of computer equipment in each of the years here in issue and, if so, to what extent are the deductions limited by the amounts for which petitioners were ‘ at risk‘ within the meaning of section 465 with respect to the purchase price of the equipment, (2) whether each petitioner is liable for the addition to tax under section 6621(c), and (3) whether petitioners against whom respondent determined an addition to tax under section 6661(a) are liable for that addition to tax. The specific arguments made by respondent in support of his disallowances of the losses claimed by petitioners in connection with the sale/leaseback transactions involving computer equipment differ to some extent for the different petitioners. In some of the transactions respondent questions whether the transactions totally lacked economic substance and were entered into solely for tax avoidance purposes. In other transactions, respondent argues that the transaction was not entered into with an intent to make a profit. In three of the transactions, respondent argues that petitioners have failed to establish that they had any depreciable interest in the equipment purchased. Respondent argues that petitioners in all but four of the transactions were protected against loss on all amounts due under their long-term notes through guarantees, stop loss agreements, or other similar arrangements within the meaning of section 465(b)(4). In all of the transactions, respondent argues that the third-party lessor was in reality the obligee of the long-term note, since the person to whom the note was drawn was merely an intermediary or straw man, and that the third-party lessor had an interest in the property guaranteeing the note other than as a creditor within the meaning of section 465(b)(3). FINDINGS OF FACT Some of the facts in these consolidated cases have been stipulated and are found accordingly. Each of the individual petitioners in these cases, other than Larry and Bonnie Shore and David C. Milgrom, resided in Florida at the time their petitions in these cases were filed. Each of the individual petitioners, other than the Shores and David Milgrom, filed a joint or individual income tax return with the Internal Revenue Service Center in Atlanta, Georgia. Petitioners Larry and Bonnie Shore, husband and wife, resided in Houston, Texas at the time their petition in this case was filed. They filed their Federal income tax return for each of the years here in issue with the Internal Revenue Service Center in Austin, Texas. Petitioner David L. Milgrom resided in Chicago, Illinois at the time his petition in this case was filed. He filed his individual Federal income tax return for each of the taxable years involved in his petition with the Internal Revenue Service Center in Kansas City, Missouri. All the corporate petitioners, except Sikeston Motel Corporation, had their principal place of business in Florida at the time they filed their petitions in this case. Each of these corporate petitioners filed a corporate Federal income tax return for the years involved in this case with the Internal Revenue Service Center in Atlanta, Georgia. Sikeston Motel Corporation had its principal place of business in Sikeston, Missouri at the time it filed its petition in this case. This corporation filed its United States corporate Federal income tax return for its fiscal years involved in this case with the Internal Revenue Service Center in Atlanta, Georgia. Each of the petitioners in these cases, except Charles A. Lipman and Chang You Wu and Elizabeth Wu, entered into transactions involving the purchase and leaseback of computer equipment pursuant to offerings made to them by a representative of Equipment Leasing and Management Company (Elmco, Inc. or Elmco) or Computer Trading Corporation (CTC), a wholly owned subsidiary of Elmco, Inc. Mr. E. Lee Meadows is, and was at all times here relevant, the chief operating officer and sole shareholder of Elmco, Inc., which he had incorporated in the spring of 1977. Mr. Lipman and Chang You Wu and Elizabeth Wu entered into their transactions directly with Computer Capital Corporation (CCC) which operated a computer leasing business. Mr. Meadows was a vice-president of CLC during 1977 when these transactions were entered into. CLC was in the business of purchasing computer equipment and leasing that equipment to users of computer equipment. Companies which purchased computer equipment, leased it to end- users and then sold the equipment to other persons from whom they leased back the equipment, are referred to herein as third-party lessors. The sublessees of...

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